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Volaris corporate presentation 4 q17
- 1. Volaris: the leading ULCC airline serving Mexico, USA and Central America March 2018
- 2. The information ("Confidential Information") contained in this presentation is confidential and is provided by Controladora Vuela Compañía de Aviación, S.A.B. de C.V., (d/b/a Volaris, the "Company") confidentially to you solely for your reference and may not be retransmitted or distributed to any other persons for any purpose whatsoever. The Confidential Information is subject to change without notice, its accuracy is not guaranteed, it has not been independently verified and it may not contain all material information concerning the Company. Neither the Company, nor any of their respective directors makes any representation or warranty (express or implied) regarding, or assumes any responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, any information or opinions contained herein. None of the Company nor any of their respective directors, officers, employees, stockholders or affiliates nor any other person accepts any liability (in negligence, or otherwise) whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. No reliance may be placed for any purposes whatsoever on the information set forth in this presentation or on its completeness. This presentation does not constitute or form part of any offer or invitation for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Recipients of this presentation are not to construe the contents of this presentation as legal, tax or investment advice and should consult their own advisers in this regard. This presentation contains statements that constitute forward-looking statements which involve risks and uncertainties. These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with respect to the consolidated results of operations and financial condition, and future events and plans of the Company. These statements can be recognized by the use of words such as "expects," "plans," "will," "estimates," "projects," or words of similar meaning. Such forward-looking statements are not guarantees of future performance and actual results may differ significantly from those in the forward-looking statements as a result of various factors and assumptions. You are cautioned not to place undue reliance on these forward looking statements, which are based on the current view of the management of the Company on future events. The Company does not undertake to revise forward-looking statements to reflect future events or circumstances. Disclaimer 2
- 3. Serving 69 destinations throughout Mexico (40), USA (25) and Central America (4) (1) Converted to USD at an average period exchange rate Volaris: snapshot at 30,000 feet 2008 2017 CAGR (08-17) Unit cost (CASM ex-fuel; cents, USD)(1) 5.5 4.7 -1.7% Passenger demand (RPMs, bn) 3.2 15.9 19.5% Aircraft (End of period) 21 71 14.5% Routes (End of period) 42 174 17.11% Passengers (mm) 3.5 16.4 18.7% Operating revenue (bn, MXN) 4.4 24.8 21.2% Adj. EBITDAR (bn. MXN) 0.7 6.6 28.3% Adj. ROIC (pre- tax) 11% 12.6% +1.6 pp. 3
- 4. Volaris’ flight path for demand stimulation and continued growth Capacity increase Cost reduction “Clean”, low base fares More customers More ancillaries (“You decide”) Resilient ULCC business model driving high, profitable growth 4
- 5. Volaris’ consistent execution of its ULCC business model well positioned for growth Diversified and resilient point-to-point network Successful price unbundling Strong penetration of Mexican air travel market Proven ancillary revenue model Bus to air substitution Upside in ancillary revenue Continue geographic diversification through international growth and Codeshare (1) Attractive emerging air travel market in Mexico Flexible fleet plan and utilization; capacity management Sustained profitability with strong balance sheet Continue cost reductions Continue route frequency increase OpportunitiesAccomplishments 5(1) On January 16, 2018; Volaris and Frontier Airlines executed a Codeshare agreement, and is undergoing regulatory approvals.
- 7. Volaris has a best-in-class unit cost structure Long-term unit cost advantage (1) DCOMPS public information for 4Q 2017, except Azul, Latam and AirAsia which public information is as of 3Q 2017 (2) DCOMPS = Direct Competitors: Delta, American Airlines, Alaska Airlines and United | (Average CASM and CASM ex-fuel) Note: Non-USD data converted to USD using an average exchange rate for the period Source: Airlines public information CASM and CASM ex-fuel (4Q 2017 (1), USD cents) Cost structure • Economies of scale - Dilute fixed costs - High seat density • Young and fuel efficient fleet - Sharklet roll-out - Average age of 4.6 years - NEO Engines rollout - Lower fuel burn • Productive network - Point-to-point - No connections complexity • High aircraft utilization - FY 2017 average 12.6 block hours per day Continued cost improvement potential 7 CASM ex-fuel CASM
- 8. Non-ticket revenues continue to grow, with upside potential 8 (1) Converted to USD using an average exchange rate for the period Source: Airlines public information Non-ticket revenue per passenger Volaris (MXN) per passenger Best-in class ULCCs, including first bag fee (FY 2017, as % of total operating revenue)(1) Ancillaries • Apply revenue management techniques - Pricing by route, season, day - Fully dynamic pricing for some products • Add products - New products & services - Enhancements to existing products • Improve presence - More touch-points to sell ancillaries throughout the journey - Allow customization • Benefit from network diversification - More international capacity • First checked bag - USA Costa Rican AOC Increasing non-ticket revenue allows to reduce fare further and stimulate demand Non-ticket revenue per pax (USD) 142 204 211 279 338 381 429 2011 2012 2013 2014 2015 2016 2017 2011-2017 CAGR: + 20.9% 28% 41% 46% 48% Volaris Wizz Allegiant Spirit $22 $26 $56 $53
- 9. Network enhancement: connecting the dots and diversifying further Note: Excludes routes and stations announced to start operations New routes Domestic International Guadalajara 3 2 Mexico City - 4 Costa Rica - 3 Tijuana - 2 Los Angeles - 4 Monterrey 3 - Other 1 9 Total 7 24 New stations DOM USA Central America Cozumel Miami San Salvador Milwaukee Managua FY 2017 Volaris diversified its network by starting operations in 34 routes and 5 stations Volaris’ 2017 new routes 9 New International New Domestic New Volaris Costa Rica Codeshare agreement between Volaris and Frontier New access to cities in the U.S. offering customers the ability to purchase the lowest fares across an extensive and well-served network.
- 10. …supporting strong capacity growth Joining existing airports Additional frequencies New airports 6.8% 3.1% 1.5% Total ASM growth 2017 capacity growth contribution 12.9% Our network is well positioned for diversified growth = + + + Volaris Costa Rica 1.5%+ 10
- 12. Yoy growth 4.0% 8.3% 8.3% 8.3% 12.3% 10.4% 8.8% GDP growth (2) 4.0% 4.0% 1.4% 2.3% 2.6% 2.3% 2.1% GDP multiplier 1.0 2.1 6.1 3.7 4.7 4.5 4.6 In recent years, Mexico’s volume growth has been robust despite challenging economic environment (1) Considers Volaris and VivaAerobus domestic market share 2017 (2) Values according to INEGI´s new methodology Source: DGAC-SCT, INEGI and Banco de México Mexico passenger market volume has increased since 2011 Passenger volume (millions) 12 Main industry growth drivers • Strong demand and increasing middle class • LCC gaining market through low fares 44% LCC share(1) • High improvement potential: -Domestic air trips per capita in Mexico 0.37 vs. Chile 0.7 4.6x GDP multiplier in recent years 25 28 30 33 37 42 45 19 19 21 23 26 27 29 8 9 10 11 12 13 15 52 57 61 66 75 82 90 2011 2012 2013 2014 2015 2016 2017 Domestic USA Other international 2011 - 2017 CAGR: +5%
- 13. 6.5% 8.1% 8.8% 11.6% 8.0% 11.0% 23.4% 10.3% 19.6% 33.3% 26.9% 12.4% 2012 2013 2014 2015 2016 2017 Market Volaris Domestic passenger growth (%) Source: DGAC Volaris growth has surpassed market growth in both domestic and international markets 13 International passenger growth (%) 10.3% 8.6% 7.9% 13.0% 12.8% 8.0% 25.2% 23.0% 7.7% 19.7% 24.8% 8.7% 2012 2013 2014 2015 2016 2017 Market Volaris
- 14. • Low costs allow Volaris to offer lower fares and make flying possible • Fleet - Up-gauging: A320neo with 186 seats and A321 with 230 seats - Young and fuel efficient: average of 4.6(1) years; new generation aircraft • Productive network with high utilization - Around 20 new routes per year - Avg. 13 block hours/day in 4Q 2017 • High and healthy load factors 84.4%% in 2017 • 27% domestic passengers market share during 2017 Volaris has been the engine of growth for VFR and leisure markets in Mexico Market growth Volaris growth 2017, Volaris was the source of 26% of the growth among Mexican carriers (1) Data as of December 2017 Note: Markets not mutually exclusive, contested domestic markets Volaris’ main growth driversSegment passenger CAGR Volaris vs. market (2010-2017) 14 Tijuana Hermosillo Los Cabos Culiacan Vallarta Guadalajara Mexico City Cancun Monterrey 10% 12% 5% 17% 10% 28% 8% 23% 11% 34% 9% 38% 8% 19% 11% 61% 13% 27%
- 15. Significant untapped opportunities 15 0 25 50 75 100 USA (VFR) USA (Leisure) CAM, SAM, Canada, Caribbean (1) Minimum stage length of 170 miles (2) Minimum stage length of 200 miles; CAM stands for Central America; SAM stands for South America (3) South and northbound leisure routes Domestic – growth potential of approx. 105 routes International – growth potential of approx. 125 routes (3) Number of routes (1) Number of routes (2) Routes served Growth potential In terms of air trips per capita Mexico has plenty potential to grow 2017 air trips per capita (domestic)(5) 0 10 20 30 40 50 *Figures calculated as of January 2018 (5) Data from the World Bank estimates FY2017. Other sources: DGAC, DIIO MI Market Intelligence for the Aviation Industry and ALTA
- 16. 28 42 29 40 2012 2016 Domestic International 2012 2016 First, economy and other Executive and luxury Volaris contributed by stimulating demand from bus to air substitution Source: Secretaría de Comunicaciones y Transportes (SCT), 2016 Bus switching programSignificant upside for air travel Total air travel passengers in Mexico (mm) Total bus passengers in Mexico (mm) 2,758 33 16 Trial Ticket giveaway #Nomáscamión First sell Strong conversion rate ULCC model Attracting 1st time flyers Mass media campaigns “Tarifa no + camion” positioning Digital capabilities Education 2,971 2,683 2,891 74 80 55 82
- 17. Volaris Obtains Foreign Air Carrier Permit in the U.S. for its Costa Rican Operations “Through OD” flights: -Los Angeles International Airport - El Salvador International Airport (SJO-SAL-LAX) -La Aurora International Airport – Los Angeles International Airport (SJO-GUA-LAX) -John F. Kennedy International Airport - El Salvador International Airport (SJO-SAL-JFK) - Washington Dulles International Airport - El Salvador International Airport (SJO-SAL-IAD) • The right market - Costa Rica is top three middle class growth of LATAM (GDP growth of 4.6% in 2017) - VFR potential in the region and to the USA • The right moment - No ULCC presence in the region • The right ULCC model - Growth sustainable and proved model, easily translatable to Central America - USD denominated revenue contributing to FX natural hedge Volaris’ Costa Rican AOC provides growth potential in Central America and to the U.S. (1) Subject to authorization from the corresponding authorities Source: World Bank, ALTA, MI-DIIO, CEPAL Infare, Banco Central de Costa Rica. Potential markets (1)Central America key insights 17 Volaris’ Central American operation full potential of 18-22 aircraft Chicago New York Los Angeles Dallas HoustonSan Antonio Orlando Miami Guadalajara Mexico City Cancun Guatemala San José, CR Managua Medellin Bogota Cartagena Quito Guayaquil Lima La Paz San Salvador La Habana * Washington D.C.
- 18. 18 First codeshare between two Ultra Low Cost Carriers Frontier business model is aligned to Volaris’ ULCC model Volaris operates in 20 out of 63 Frontier’s airports Benefits Grow and enhance our network to offer a greater public benefit, the lowest prices between Mexico and USA Strong connectivity potential: ~20 destinations and ~80 new beyond routes Volaris and Frontier’s networks Codeshare Agreement between two Ultra Low Cost Carriers: Frontier and Volaris
- 20. Volaris’ fleet plan supports its strategy to drive lower unit costs 20 Note: NEO stands for the Airbus new engine option; CEO stands for the Airbus current engine option (1) Net fleet after additions and returns (2) Source: Airbus (3) 40 commitments + 80 follow-on order aircraft; out until 2026 • A321 (CEO and NEO) - 230 seats (up-gauge) - ~10% CASM dilution(2) • A320 NEO - Combined fuel consumption reduction by approx. 17-19% per seat(2) • A320 CEO with sharklets - Fuel consumption reduction by approx. 3%(2) • All PDP requirements fully financed for next four year deliveries Contractual fleet obligations (number of aircraft)(1) Backlog of 120 Aircraft to support growth (3)
- 21. 1.2 2.5 2.8 3.1 6.5 8.9 6.6 0 5 10 2011 2012 2013 2014 2015 2016 2017 (MXNbn) 2011 - 2017 CAGR: +32.3% 8.9 11.7 13.0 14.0 18.2 23.5 24.8 0 15 30 2011 2012 2013 2014 2015 2016 2017 (MXNbn) 2011 - 2017 CAGR: +18.7% High growth and solid financial performance 21 Source: Airlines public information for Full year 2017, except Azul, Latam, AirAsia; which public information is LTM as of September 2017 Revenue CAGR 2011 - 2017 Revenues Adj. EBITDAR 2017 Adj. EBITDAR margin
- 22. 2.5x 4.6x 4.8x 5.1x 5.2x 5.2x 5.2x 7.3x Copa Volaris Azul Latam Avianca Gol Aeromexico InterjetGolGol Strong balance sheet and liquidity, well funded for continued growth 22 Adj. net debt / EBITDAR Liquidity-cash and equivalents as a % of 2017 Op. Revenue • Unrestricted cash of $6.9 billion pesos (US$ 352 million) as of Dec 31, 2017. • Net cash position of $3.5 billion pesos (US$ 175 million) as of Dec 31, 2017. • Adjusted net debt to EBITDAR of 4.8x (1) as of Dec 31, 2017. • Fully financed pre-delivery payments for deliveries up to 2021. • Expected 2018 net CAPEX (US $80 to $110 million): • PDPs: from US $20 to $30 million, net of PDP reimbursements (includes 4 A/c deliveries) • Major maintenance: from US $50 to $60 million • Other: from US $10 to$ 20 million (1) Excluding supplemental and contingent rent for adjusted debt *Non-USD data converted to USD using an end of period exchange rate for the period Source: Airlines public information public information for 4Q 2017, except Azul, Latam and AirAsia which public information is as of 3Q 2017 (1)
- 23. Appendix
- 24. Fuel price protection 24 (1) Approximate percentage of gallons hedged Period Total % hedged(1) Avg. price (gal/USD$) Instrument 1Q18 60% $1.63 Asian Call 2Q18 60% $1.74 Asian Call 3Q18 55% $1.78 Asian Call 4Q18 45% $1.85 Asian Call
- 25. (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (3) Audited financial information 2014A – 2016A Consolidated statements of operations summary MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A(1) 2017 2017(2) % of total operating revenues (USD millions) (USD millions) Passenger 11,303 14,130 17,790 861 17,791 901 71.6 Non-ticket 2,733 4,049 5,722 277 7,054 357 28.4 Total operating revenues 14,037 18,180 23,512 1,138 24,845 1,259 100 Other operating income (22) (193) (497) (24) (97) (5) (0.4) Fuel 5,364 4,721 5,741 278 7,256 368 29.2 Aircraft and engine rent expenses 2,535 3,525 5,590 271 6,073 308 24.4 Landing, take off and navigation expenses 2,066 2,595 3,272 158 4,010 203 16.1 Salaries and benefits 1,577 1,903 2,420 117 2,824 143 11.4 Sales, marketing and distribution expenses 817 1,089 1,413 68 1,692 86 5.8 Maintenance expenses 665 875 1,344 65 1,433 73 8 Other operating expenses 490 698 952 46 1,088 55 4 Depreciation and amortization 343 457 537 26 549 28 2 Total operating expenses 13,833 15,669 20,773 1,005 24,827 1,258 99.9 6 EBIT 204 2,510 2,740 133 19 1 0.08 Operating margin (%) 1.5 13.8 11.7 11.7 0.08 0.08 Finance income 23 47 103 5 106 5 0.43 Finance cost (32) (22) (35) (2) (86) (4) (0.35) Exchange gain/ (loss), net 449 967 2,170 105 (794) (40) (3.20) Income tax expense (39) (1,038) (1,457) (71) 161 8 0.65 Net income 605 2,464 3,519 170 (595) (30) - Net margin (%) 4.3 13.6 15.0 15.0 (2.4) (2.4) EPS Basic and Diluted (Pesos) 0.60 2.43 3.48 0.17 (0.59) (0.030) EPADS Basic and Diluted (Pesos) 5.98 24.35 34.78 1.68 (5.88) (0.30) 25
- 26. Consolidated statements of financial position summary (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) Net debt = financial debt - cash and cash equivalents (3) Adjusted debt = (LTM aircraft rent expense x 7) + financial debt (4) Adjusted net debt = adjusted debt - cash and cash equivalents (5) Audited financial information 2014A – 2016A (6) Certain amounts related to prepaid income tax and guarantee deposits, presented in the consolidated statement of financial position have been reclassified in 2015A, in order to be comparative with the classification between current and non-current assets presented during 2016A (7) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 respectively, for convenience purposes only MXN millions unless otherwise stated (5) 2014A 2015A(6) 2016A 2016A(1) 2017 2017(7) (USD millions) (USD millions) Cash and cash equivalents 2,265 5,157 7,071 342 6,951 352 Current guarantee deposits 545 873 1,167 56 1,353 69 Other current assets 879 1,193 3,313 160 3,009 152 Total current assets 3,689 7,224 11,551 559 11,313 573 Rotable spare parts, furniture and equipment, net 2,223 2,550 2,525 122 4,376 222 Non-current guarantee deposits 3,541 4,693 6,560 317 6,098 309 Other non-current assets 452 765 1,146 55 12,192 618 Total assets 9,905 15,232 21,782 1,054 22,666 1,149 Unearned transportation revenue 1,421 1,957 2,154 104 2,162 110 Short-term financial debt 823 1,371 1,051 51 2,404 122 Other short-term liabilities 2,524 3,745 4,683 227 4,807 244 Total short-term liabilities 4,768 7,073 7,888 382 9,372 475 Long-term financial debt 425 220 943 46 1,079 55 Other long-term liabilities 242 1,113 2,157 104 2,052 104 Total liabilities 5,435 8,407 10,988 532 12,503 634 Total equity 4,470 6,825 10,794 522 10,163 515 Total liabilities and equity 9,905 15,232 21,782 1,054 22,666 1,149 Net debt (2) (1,017) (3,566) (5,077) (246) (3,468) (175) Adjusted debt (3) 18,990 26,268 41,125 1,990 45,994 2,330 Adjusted net debt (4) 16,725 21,111 34,053 1,648 39,039 1,978 26
- 27. Consolidated statements of cash flows summary (1) Full year 2016 figures converted to USD at December end of the period spot exchange rate $20.66 for convenience purposes only (2) 2017 figures converted to USD at December end of the period spot exchange rate $19.74 for convenience purposes only (3) Audited financial information 2014A – 2016A MXN millions unless otherwise stated (3) 2014A 2015A 2016A 2016A(1) 2017 2017(2) (USD millions) (USD millions) Cash flow from operating activities Income before income tax 644 3,502 4,977 241 (756) (38) Depreciation and amortization 343 457 537 26 549 28 Guarantee deposits (695) (1,165) (1,957) (95) 57 3 Unearned transportation revenue 27 536 196 10 8 - Changes in working capital and provisions 14 (261) (2,773) (134) (1,127) (57) Net cash flows provided (used in) by operating activities 334 3,070 979 47 986 50 Cash flow from investing activities Acquisitions of rotable spare parts, furniture, equipment and intangible assets (1,603) (1,456) (2,259) (109) (2,653) (134) Pre-delivery payments reimbursements 396 670 1,733 84 214 11 Proceeds from disposals of rotable spare parts, furniture and equipment 22 185 498 24 178 9 Net cash flows used in by investing activities (1,185) (601) (28) (1) (2,260) (115) Cash flow from financing activities Treasury shares purchase (7) - (17) (1) (10) (1) Proceeds from exercised stock options - 23 20 1 1 - Interest paid (23) (42) (39) (2) (105) (5) Other finance costs (11) (40) (138) (7) - - Payments of financial debt (400) (801) (1,531) (74) (925) (47) Proceeds from financial debt 966 925 1,716 83 2,438 123 Net cash flows provided by financing activities 525 65 11 1 1,398 71 (Decrease) increase in cash and cash equivalents (326) 2,533 962 47 124 6 Net foreign exchange differences 141 359 952 46 (244) (12) Cash and cash equivalents at beginning of period 2,451 2,265 5,157 250 7,071 358 Cash and cash equivalents at end of period 2,265 5,157 7,071 342 6,951 352 27
Editor's Notes
- Volaris is the lowest unit cost operator in the Americas with a CASM ex-fuel of less than 5.0 cents This chart is a great presentation card of our company! As you probably remember, Volaris was founded in 2006 Before it’s inception, Mexico´s air travel market had been through a 10 year process of: Fares increasing by 5% every year and Demand contracting at the same rate every year; at that time, the domestic market was only 22 million passengers per year This trend changed dramatically when Volaris started operations -- and in the last twelve months to June 2017, the market grew at a pace of 10.6%, to 44 million domestic passengers The Mexican economy as a whole is growing through a high to higher consuming middle class which is estimated to become a 52%, of our total population, by the end of 2022. We started operations in 2006 with a point to point model focused on Visiting- Friends and Relatives passengers and in the last 9 years Volaris’: Passenger demand expressed in RPMs expanded 20.6% Aircraft operated increased 16% every year Routes flown expanded by 18% every year to 67 destinations throughout Mexico, USA and now Central America and the Caribbean Passengers transported grew at a pace of 20% Operating Revenues by 23%, and Adj. EBITDAR grew 37.4% per year Clearly this is a story of the lowest cost operator in the Americas with an impressive history of growth – and that continuously over 9 years! Let me finish the Introduction of Volaris by saying that Adjusted ROIC in the last twelve months has been at the level of 18%
- I remember when we founded the company: We wanted a model suitable to this middle class growing population We needed an accelerator for demand: Clean, low base fares We started building business model as a virtuous cycle: based on cost reduction as a starting point We then unbundled our fares and presented them as what we call “Get out of Town Fares” The combination of these two elements created elasticity in our markets and as a result volume growth which, Then we let the customer pick and choose: They decide from a choice of products they really need and that for us becomes ancillary, Non-Ticket Revenue Higher demand requires more capacity every day In a emerging air travel market that grows 4-5 times its GDP: Volaris expands at a pace of two times the market growth in the last 9 years, because of its simple and resilient ULCC business model And this in turn drives high and profitable growth Bottom Line: we produced what we called irresistible fares for a high growing middle class with high and increasing purchasing power
- Volaris is a very disciplined organization We have consistently executed the ULCC business model and the results translated in a well positioned company for growth On the Accomplishments: We clearly depart from the fact that we have the lowest cost Strongly penetrated our markets. We grow at least 2 times faster than the market and above any of our competitors. Remember Volaris is an ULCC with a market share of already 24.4%. Spirit, to take an example from the US, has less than 2% of the domestic US market. Recently, we diversified our network more and more, intentionally creating increased route overlap with all of our domestic competitors that operate in the domestic market -- up to 80% of their networks—This has insulated us from pricing attacks on Volaris in our main markets. We have an active Bus switching program with education programs, trials that incentive first time flyers We successfully unbundled our prices We launched, executed and grew an ancillary revenue model which will always compensate our intentional base fare yield reductions All in all: we created a sustainable profitable company with a strong balance sheet that allows us the capacity to continue growing On the Opportunities we can say that we are just scratching the surface We operate in an attractive emerging market environment We have enough new route expansion potential where can continue with our geographic diversification Through international growth And in the domestic market linking the dots and increasing frequencies We clearly see upside for our ancillary revenue strategy We have enough aircraft on order to grow in the following years and our flexible capacity management has proven we can: in a short period of time, either expand or contract utilization And we see room for improvement in cost reductions, which insulates us In a nut shell: A company in a great position With high and growing capacity, Capacity to significantly improve its total revenue and our margin profile and With low to lower costs… That can not only insulate us, Produce further good return for our investors, Now let me pass it over to Holger Blankenstein, our Chief Commercial Officer
- The most important metric for us, as an Ultra Low Cost Carrier is the unit operating cost Volaris has a best-in class unit cost structure, among the best in the world We have a Cost per available seat mile of 6.9c, and excluding fuel of 4.7c. Among our peer group in Latin America, US LCCs and US network carriers, we have the lowest cost We have achieved this low cost position by Achieving economies of scale through our high growth A young and and fuel efficient fleet A focus making our network more productive High aircraft utilization As we continue to grow, we see additional cost improvement potential to make us the world’s best airline - which we will elaborate on later in the presentation
- One of the main elements of our commercial strategy has been the emphasis on non-ticket revenue growth. Non-ticket revenues continue to grow and there is a lot of upside potential: Non-ticket revenues per passenger have grown from continually during the last 9 years, reaching 24 USD in the quarter ended in June 2017. Actually, if we were able to charge for the first bag in our domestic market (which is not allowed by law in Mexico) we would be around Wizz’ levels. However, there is additional upside potential if we compare ourselves with the best-in-class airlines for ancillaries: Allegiant and Spirit In the next years we plan to further grow ancillaries by applying proven revenue management techiques to some of our main ancillary products Adding new products & services Improving the presence of products and services throughout the passengers’ journey with Volaris We will also benefit from network diversification as international customers are more prone to buying ancillary services These 4 initiatives will allw us to further reduce fares and stimulate demand
- Our other focus has been enhancing our network – our network is now much more diversified and resiliant than some years ago: 1) We have connected many dots in our route map and thereby servicing routes with no competition 2) We have added capacity that compete with high cost competitors such as Aeromexico and the US legacy carriers Our network expansion has been heavily focused on the US market, with 7 new cities we service We also opened 4 new destinations in Mexico and 4 new countries: Guatemala, Costa Rica, El Salvador and Nicaragua
- This network enhancement has supported strong capacity growth – a growth available seat miles of 18.8% through deepening our footprint, joining the dots, adding new airports or destination and adding 2 new countries: Costa Rica and Guatemala This positions us extremely well for further diversified growth Let me now give you more details on these growth opportunities:
- The Mexican air markets has the profile of a high growth, emerging market – in recent years, volume growth has been robust The compounded annual growth rate of the market was 9.5% over the last 5 years – this implies a GDP multiplier (air traffic growth to GDP growth) well above 2.0 a typical emerging market multiplier
- In the last 5 years, supply of capacity in terms of “available seats miles” has grown 7% per year while demand has actually grown 10% annually with an average GDP mulitlier of 2.2 Clearly Mexico’s market profile is very different from mature markets like in the US or in Europe
- Volaris contributed significantly to this market growth through stimulating demand from bus to air substitution. Volaris is not affiliated with any bus company, so we have more flexibility in attacking the bus market. In Mexico, there are 2.8 bus trips per year, out of which 77 M are in “executive and luxury” services – whereas there are only 67 M air trips per year. We have embarked on a formal and large effort of “bus switching” We are doing an education program of the bus customer about Volaris in mass and social media As part of our trial program, we are giving away Volaris tickets to bus customers in bus stations and in shopping malls We are developing new, non-traditional distribution channels for bus customer being able to buy our tickets, such as in convenience stores and super markets Thus, we are attracting many 1st time flyers – actually as many as 30% of our customers claim that they also considered taking the bus when surveyed onboard So: It is important to underline that Volaris not only operates in a high growth emerging market, but we also have the ability to grow faster than the market as a whole, due to this bus switching program We are convinced that there continues to be a sizeable opportunity to grow through switching passengers from bus to air
- Porque somos diferentes, reconocemos que, para hacer crecer la aviación en MÉXICO, de la mano con todos nuestros socios de negocio, el Gobierno mexicano y sus autoridades, aeropuertos, proveedores, arrendadores, bancos, aseguradoras, y demás socios de la aviación, es necesario que VOLARIS inicie una relación adicional en forma de alianza con otra aerolínea en ESTADOS UNIDOS. Acabamos de formalizar el primer contrato de alianza en CÓDIGO COMPARTIDO BILATERAL entre dos AEROLÍNEAS de ultra bajo costo en la historia de la aviación. El contrato es entre VOLARIS y la aerolínea estadounidense – FRONTIER ‐. Este esfuerzo dará acceso a tarifas de bajo costo para millones de viajeros en MÉXICO, ESTADOS UNIDOS, Centroamérica y el Caribe. También permitirá vender boletos de avión y conectar itinerarios de ambas aerolíneas, combinando sus redes de rutas, y por primera vez en la historia la combinación de las tarifas más bajas de dos aerolíneas de ultra bajo costo, para hacer crecer el turismo, el tráfico de negocios, así como seguir conectando familias entre los países en más de 125 destinos combinados de las dos aerolíneas. Esta transacción está sujeta a aprobaciones de las autoridades de ambos países, pero tenemos el objetivo de obtenerlas a fines de la primavera de este año.
- Going forward, the mix of our fleet is reducing the number of A319s so that we only keep those that we need for specific and ramp up markets. Most of our 320s are configured with sharklets, which provide a 2 to 3% fuel savings. In addition, since 2016 we are receiving the A320s NEOs with sharklets which promise combined fuel savings of over 17%. We also continue increasing the number of A321s as marked by our up gaging strategy and contributing to a better CASM.
- We have observed high growth and a solid financial performance Beginning with the top line Revenue… Revenue CAGR Achieving an EBITDAR margin of 30% in the last twelve months ended June 2017. In line with best-in-class ULCCs
- We also count with a strong balance sheet and good liquidity We have had strong positive cash flow generation in the past four quarters We are fully financed for our pre-delivery payments through 2018 and have been executing sale and leaseback in all our deliveries. On the balance sheet we have unrestricted cash for $6.0 billion pesos, of $309 million dollars Which results in a net cash position of $3.9 billion pesos or $219 million dollars And in terms of liquidity we have an adjusted long term debt to EBITDAR ratio of 5.2 times Let’s go back to Enrique who will make the closing remarks